Dollar Losses Not Complete Yet

Dollar losses continued on Friday and quite convincingly too. It left me with a puzzle to solve and one that, in the end, had me having to review the daily structures. The conflicts within USD/CHF and the strength of momentum in EUR/USD that seems to point to further strength, combined with the expectation that GBP/USD cannot go much further higher, forced me to consider how all these to slot together.

The solution came towards the end of the weekend and basically indicates that we do still have dollar losses to come but these shouldn’t last for too much longer now. Indeed, the probability seems to favour a rather cagey start to the week with a small correction.

The double whammy with this refreshed outlook is that it combines well with the outlook in the U.S. equities with recent developments tending to see a pretty close correlation with EUR/USD.

Where I do have some serious question marks is over AUD/USD that had, for a long time, been developing pretty much to expectations. The final three days of last week has put that under strain to leave me with some short term doubts although my long term outlook has remained the same. It has just taken a far, far longer time for this to come to fruition than I had expected. For now it’ll be worth exercising some caution until a stronger signal is given.

Finally, the JPY pairs. Overall I remain bullish for USD/JPY and this morning’s gap higher appears to mean bullish business as usual. This still has a little way to go but do remember that given the very shallow corrections earlier in the sequence the risk is for some deeper corrections before long. EUR/JPY looks like it's being carried higher along with USD/JPY – and at some point when EUR/USD also makes its move higher that should carry it higher too. This will be all about the balance between EUR/USD and USD/JPY…

The Europeans seem a better bet today. USD/JPY also seems to have solid gains but be aware of reversal indications.